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Summary:

When Cisco Systems announced plans to enter the enterprise server market, no company stood up and took notice more than Hewlett-Packard — the HP ProLiant line of servers, after all, is a force in the enterprise market; Cisco’s entrance was essentially a declaration of war on […]

When Cisco Systems announced plans to enter the enterprise server market, no company stood up and took notice more than Hewlett-Packard — the HP ProLiant line of servers, after all, is a force in the enterprise market; Cisco’s entrance was essentially a declaration of war on its former partner. To paraphrase one of my favorite characters on “Lost,” “They changed the rules.” Now, HP must change the rules again, for in order to win this war they are going to have to first win numerous strategic battles, and for that they’ll need to start shopping.

HP needs to first realize that the focus of this war is the enterprise IT market. As far as the other markets Cisco serves, service providers are already being flank attacked by Huawei, Juniper, Alcatel-Lucent and Ericsson, to name just a few, while DLink, Netgear and dozens of others are busy in the Linksys consumer markets.

HP needs to think about the markets their enemy is headed toward, not where it has been or is today. They need to think about what the IT marketplace will look like in 2-3 years, when CIOs could actually have budgets again. Startups are where the innovating ideas of tomorrow are already being developed, and for many of these companies, their price tags may never be this low again.

So, which startups should HP acquire? If it’s looking to make gains at the expense of Cisco, the list is as follows:

Cavium Networks: This Mountain View, Calif.-based startup builds intelligent processors for networking functions such as compression, encryption and data acceleration. Notably, however, Cisco is a major customer of Cavium’s, so I imagine they’re contractually obligated to provide Cisco processors for many years to come.

Arista Networks, Blade Network Technologies or Force10/Turin Networks: While HP’s ProCurve line of switches has become a significant player in the enterprise data networking market, it needs to have a winning 10/100 gigabit Ethernet switching product line. Each of these startups have Ethernet switching technologies that could help HP aggressively attack Cisco at the core of the data center network.

DataDomain, StorWize or Ocarina Networks: Storage optimization is the emerging technology that CIOs need in order to cost-effectively deal with the mountains of data that enterprises store over long periods of time. With an $800 million market capitalization, DataDomain may be too large of an acquisition right now, but both StorWize and Ocarina Networks are just the right size.

BlueCoat, Zeus Technology and Strangeloop Networks: The application delivery market, focused on making applications run faster and optimally, is a battlefield strewn with many players. While HP recently inked a partnership with Riverbed, this is merely a shot across the bow. HP needs to acquire in this area, and although market leaders F5 (market capitalization of $2 billion) and Riverbed (market capitalization of $800 million) may be too expensive, BlueCoat, which has a $400 million market cap, may give them the firepower they need. Likewise, startups focused on the next generation of application delivery such as Zeus Technology and Strangeloop Networks would provide the necessary weaponry.

Nirvanix or Parascale; Rightscale or Elastra; SkyTap: Most of the companies in the enterprise cloud computing space are still privately held, so this may be the ideal time to make decisive acquisitions. HP should acquire companies focused on helping enterprises reach storage and compute power in the cloud in a scalable manner, those enabling what I call the Cloud Two-Step. In the storage battleground, HP should move to provide outsourced storage clouds, perhaps by acquiring Nirvanix, or allow enterprises to build internal storage clouds by buying Parascale. In the compute cloud market, HP needs to acquire a company such as Rightscale or Elastra. To help enterprises build and scale applications, SkyTap, which provides testing resources in the cloud, would make a compelling acquisition.

To win the upcoming war, HP needs to pick its battles carefully and strike quickly. For the past decade, Cisco and HP have had a cold war alliance –- Cisco claimed enterprise IT networking while HP focused on enterprise servers and compute. Both companies have been rewarded with exceptional market capitalizations. Now that Cisco has broken that alliance and declared war with their enterprise servers, HP must respond. I suspect bloodshed will soon ensue, so HP should move quickly — or risk losing the war before the first shot is fired.

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  1. Now that Cisco has broken that alliance and declared war with their enterprise servers, HP must respond.”

    What about HP’s focus on Enterprise switching? Or HP’s Virtual Connect? Didn’t HP just buy a wireless networking vendor? Not that Cisco is innocent (they are always looking to move into “adjacent markets”), but I always thought that HP made the first couple of moves here.

  2. You missed unified communication. HP is in talk with an Indian startup for unified communication, to go head-to-head with Cisco

  3. Douglas Gourlay Saturday, February 7, 2009

    Somewhat revisionist history my friend, ProCurve and Virtual Connect, and recent wireless announcements were entrances into Networking years before Cisco ever made any shift towards Unified Computing.

    One thing to keep in mind, even with slanted reporting ;), is that the real test will be not if Cisco enters the Unified Computing space, or HP enters the networking space- the test of both companies will be if they continue to partner together to deliver customers interoperable and valuable solution.

    Speaking for Cisco we see that while both companies have intersecting trajectories, our customers do not want that to disrupt services delivery, vendor support, TAC escalations, protocol interoperability, or hosted offerings. Both companies are far more mature now- and will compete in some areas, and we hope, continue to partner in others.

    dg

  4. It is not often I agree with Doug Gourlay, but HP has been shifting customers to HP Procurve for years for Ethernet edge switching. Lately they have moved to extend control of the Access Layer with a range of small changes.

    Most HP staff internally prefer Cisco, but the internal Procurve division have been able to impact many business units.

    In practical terms, look to the IBM / Cisco relationship for pointers on how to be frenemies. HP & Cisco as organisations are too big to go gloves off, they will find ways to solve the partnering problems.

    Reminds of the late 90’s, when Cisco sold direct and via the channel. Its kind of the same problem.

  5. Thoughtful analysis but there are a few things I don’t like about it:

    1) HP is a mega-company. You right about some companies as being “too big” and for HP it is just the opposite, they want/need/prefer big. It’s the only way to move the needle.

    2) Going in the same direction as Cisco may not in fact be the most capital efficient strategy. HP can also expand greatly in areas that Cisco is not, particularly in the consumer area where Cisco has very little cred. This could be in mobile Internet or digital media to name two.

    HP has many businesses that go head to head with Cisco (like Halo vs Telepresense) but they just are too diverse to fight when Cisco puts all their energy behind their core businesses. Better to stay out of the way.

    I agree that HP, IBM, Cisco know how to compete but not kill themselves in the process.

  6. @Aaron – you are right, HP has always tried to encroach on some of the Cisco markets. But, as far as I can tell they have done ok, but not great there and clearly have not treaded on Cisco’s core routing products. With Cisco announcing their intentions to move into HP’s main bread and butter it appears to be war time.

    @Jack Garner – I missed unified communication on purpose and I actually had that in a draft of this post. I think for HP to win this war they need to focus on future markets where they can acquire to gain ground or even gain a lead from Cisco. I’m not sure that unified communications qualifies here – is there a company you would recommend that they acquire?

    @Doug Gourlay – Slanted reporting or not (and in full disclosure please note that I was a Cisco employee for over seven years and HP was my employer for two years out of college), from what I can tell battle lines are being drawn out and crossed in the partnership arenas. If Cisco and HP prove to have the same partnership in enterprise accounts in a few years then you can tell me I am wrong :)

    @Etherealmind – Like my comments to Doug above, I truly think this time it’s different from a partnership perspective. I do agree with you that HP and IBM face the same threats from Cisco and are preparing for a major fight. If I were a betting man, I would put money that over the next few years we’ll see the gloves off and brass knuckles out in full force.

  7. @Kris Tuttle – Thanks for the nice words. I think that if HP was able to take significant marketshare from Cisco in the enterprise networking markets in the future (focusing on the areas I outlined) then it will absolutely move the needle. Cisco and HP both have about a $90 billion market cap and if either gains market share in servers or networking the markets will take notice.

  8. Douglas Gourlay Saturday, February 7, 2009

    @Allan with the definition of ‘same partnership’ I will agree with you completely, it will change, the nature of the relationship will have to. I have seen Cisco and Microsoft compete in some areas, partner in others, IBM and Cisco as well. I hope we can have a similar relationship with HP moving forward where customer-success is concerned.

    What I don’t understand though is the portrayal of this as Cisco entering HP’s turf first, and not recognize HP’s significant thrust into networking that has been happening for years. (Andy Bryant, from HP, commented on SeekingAlpha – “HP is already in networking, and we’re the leading alternative to Cisco for the Enterprise. …we don’t report numbers as a distinct business within HP’s annual reports, but we are a growing business.”)

    And in the spirit of disclosure as most everyone knows I work at Cisco, coming in just at Allan was leaving for his ISP adventure. It’s such a small world…

  9. The problem HP is getting killed for is that they are suffering disruptive lifecycles.

    The beauty of Cisco is that they are insanely innovative and going into markets that feed their lifecycles. Cisco will win because they are hell-bent on innovation, research & development. This is needed for growth now and survival in the long term! http://glassified.wordpress.com/2009/02/03/croslins-theory-of-disruptive-lifecycles/

    Disclosure: my new CTO, David Croslin, was the Chief Technologist of HP’s Media, Communications & Entertainment vertical. He DID NOT tell me anything bad about HP! (Just making sure he won’t get in trouble with his HP buddies)

    ;-)

  10. @Doug – Yes, HP is in networking – but they have stayed away from Cisco’s core markets either because they knew they could not compete there and/or they respected their alliance with your company. Now that you are going after the market where HP is claiming market leadership (they claim they are #1 in enterprise servers), are you going to consciously stay away from competing with them in their core markets and enterprise customers or move in to compete with them directly? I suspect you’re going to do what Cisco does best – compete directly in the enterprise markets and customers – and I feel that will change the nature of the partnership and invoke an all-out war.

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